Medtronic spends $1.6bn to finish what it started with Mazor

The industry leader’s biggest buy since Covidien gets it into robots, but direct competition with Intuitive is unlikely.

Having nibbled away at Mazor Robotics in a succession of small deals since early 2016, Medtronic has finally swallowed the whole thing. The deal struck today for the 88% or so of the Israeli surgical robot company Medtronic does not already own values Mazor at $1.6bn.

The deal could have profound consequences for the robotic surgery market. This currently consists of one huge company, Intuitive Surgical, and a number of smaller groups trying to break through; the world’s biggest medtech is now muscling in, and it will be interesting to see how the segment is changed.

Medtronic’s involvement might not slice into Intuitive’s share to any great degree. The two big groups will probably be able to sit side by side in the market, at least for a time, since their machines do different things. Mazor’s Renaissance surgery guidance software and Mazor X machine are used for spine and brain procedures, whereas Intuitive’s range of da Vinci systems can perform a wide variety of soft tissue surgeries, from transoral tongue resection to cardiotomy.

Mazor’s main direct competitor is Globus Medical, but Mazor is some way ahead; analysts from Wells Fargo state that 192 robotic spinal surgery machines were installed in the US by the midpoint of this year, 155 of which were Mazor X and Renaissance. The other 37 were Globus systems. And the analysts predict sharp sales growth for Mazor’s systems, saying that they expect around 110 devices to be placed in 2018 compared with 47 last year.

Medtronic and Mazor are expected to debut an enhanced version of the Mazor X, intended to improve the competitive landscape versus Globus, at the North American Spine Society conference next week.

Piece by piece

Medtronic’s interest in surgical robotics and Mazor in particular has been obvious for some time. In May 2016 Medtronic bought 4% of Mazor’s outstanding shares and agreed to promote Renaissance in a deal worth $12m. Three months later a second payment, this time of $20m, pushed Medtronic’s stake up to 7.3%.

Following a final investment of $40m in August 2017, at which point Medtronic took over the sales of Mazor X, Medtronic owned 11.9% of Mazor.

For the acquisition of the rest, Medtronic has judged the timing nicely. Mazor’s Nasdaq-listed ADRs hit an all-time high of $74.82 in February but have declined since, and poor second quarter results in August pushed the stock down to $42.65.

Medtronic’s offer comes in at $58.50 per ADR and eclipses the $1.1bn purchase of HeartWare in 2016 to become the biggest deal it has done since its vast 2015 merger with Covidien. This, at $50bn, is still the industry record-holder in terms of overall value.

Medtronic’s willingness to splash $1.6bn on Mazor shows just how important it believes robotic surgery to be. It might not be coming after Intuitive at the moment, but one day it might.